Abuses of Equity Compensation by Top Executives

Why has equity compensation expanded so much over the past 10-15 years.

Below are some of the reasons:

1. The top officers and directors hire plan designer and attorneys to design the Equity Compensation Plans to allow the executives to extract maximum wealth from the company and get tax advantages for the recipients of the grants.

2. In the case of ESO's the grant values are minimized when the grants are made, thereby decreasing the reported expense to the company below their true value.

3. Often the stocks are manipulated down immediately prior to the grants of all forms of equity compensation to minimize the stated expense to the company and maximize the value to the recipients.

4. The designers often give the executives the choice of delivering the shares or cash for exercise prices payments or taxes, thereby allowing the "unfair use of their inside information" that they received as executives. Sometimes the designers give the issuer the choice of withholding shares or cash for exercise price payments or for tax payments.

5. The plans are designed to allow the executives to try to avoid the penalties under Section 16 (b) of the Securities Exchange Act of 1934.

6. Some companies pay attorneys to obstruct the enforcement of Section 16 (b) to allow the executives to extract maximum wealth from the company.

John Olagues


Edited Thu, Jun 7, 2018 9:55 AM

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